Jason Chen's sloppy iPhone breakdown damaged the prototype and may have added vandalism to the list of pending charges against him and other Gizmodo staffers. (Source: Gawker Assets)

Vandalism and sale of trade secrets are two of the top charges that may be leveled against Gizmodo's staff

Gizmodo/Gawker
employees Brian
Lam and Jason
Chen are embroiled in a mess over the fourth generation
iPhone that they purchased and then tore apart. Lam and Chen
contend that the iPhone was merely lost and that they are innocent.
Apple, however reported the phone stolen.

Documents concerning
the case and the search
of Chen's house have been released in the form of an
affidavit pertaining to the search of Chen's home. The
damning summary of the case comes on page 12, which reads:

Suspect
Brian Hogan found or stole a prototype iPhone 4G that was
accidentally left at a restaurant by Apple employee Robert "Gray"
Powell. Hogan identified the owner of the phone as Apple Engineer
Gray Powell through the contents of the phone and through Internet
searches. Rather than return the prototype phone to Powell and/or
Apple, Hogan subsequently sold the iPhone Jason Chen in Fremont for
$5000. Upon receiving the stolen property, Chen disassembled the
iPhone, thereby causing it to be damaged. Chen created copies of the
iPhone prototype in the form of digital images and video, which were
subsequently published on the Internet based magazine Gizmodo.com.

It's
will be mighty hard for Gizmodo to dispute that,
except perhaps for the phone's status being stolen. However,
Apple had reported the lost phone prototype stolen
before Gizmodo found it.

Gizmodo's
writers appear to have not been truthful about at least one
significant detail of the incident. In their coverage they
claimed they bought the prototype for $5,000. According to
multiple accounts the real total was close to $10,000.
Detective Matthew Broad describes in the affidavit an interview with
Katherine Martinson, roommate of Brian Hogan, the man who found and
sold the phone:

Martinson
said Hogan later showed her a camera box that contained $5000.00 in
$100 US Treasury Notes. Hogan told her that the money was a result of
selling the phone to Jason Chen. Martinson said Hogan told her he
has received a total of $8500.00 the sale of the
phone, but she is not sure of the source of the additional $2500.00.
Martinson said Hogan also told her that he will receive a cash bonus
from Gizmodo.com in July if and when Apple makes an official product
announcement regarding the new iPhone.

(Note:
There seem to be some discrepancies in Detective Broad's numbers, he
probably meant $5,000 and $7,500; not $5,000 and $8,500. The
take home message, though, appears to be that Gizmodo paid more than
the $5,000 they claimed.)

The affidavit also reveals:

Martinson
said she and other friends attempted to talk Hogan out of selling the
iPhone prototype on the basis that the sale would ruin the career of
Robert "Gray" Powell (Apple engineer who lost the
phone). Hogan's response to her was that it, "Sucks for
him. He lost his phone. Shouldn't have lost his phone."

It
also reveals that Hogan had an accomplice -- his roommate Thomas
Warner. Warner, who has a misdemeanor history, helped Hogan try
to destroy evidence of the phone. States the report:

Based
upon the fact that Warner directly assisted Hogan with the removal
and concealment of evidence directly related to this case, I believe
it is highly likely that Warner was involved and or conspired with
Hogan in the negotiation and subsequent sale of the prototype iPhone
and that his efforts to conceal and or destroy the evidence
as an indication of his consciousness of guilt. I also know that
cellular devices like BlackBerries and iPhones function as small
computing devices and that they maintain large quantities of data
which include, but are not limited to call logs, email
communications, system logs, GPS logs, text messages, applications,
and Internet browsing history. Additionally, based upon my training
and experience, I know that continued use of the devices can result
in the deletion of data and or potential evidence on the phone.
Therefore, I seized the items as evidence.

Unfortunately,
Warner and Hogan's attempts to hide or destroy the evidence were
largely for naught, as the pair apparently had a change of heart and
directed police to the evidence they had ditched. The ditched
items include stickers that identify the phone as an Apple prototype,
a camera memory card, a USB memory stick, and a computer.

The
affidavit also contains part of the email exchange between Brian Lam
and Steve Jobs, in which Lam demands a letter of authenticity for the
phone's safe return. Jobs complied with the demand, according
to the affidavit.

The affidavit indicates that Chen and/or
others at Gizmodo will
likely be charged with receiving stolen property, vandalizing private
property, and sale of trade secrets. Even if they can escape
the claim that they bought stolen property, they will be particularly
hard pressed to fight the vandalism charge, as it is obvious they
damaged the expensive prototype.

The seller Hogan may be
charged with felony theft and or sale of trade secrets as well.
And his friend Warner may be charged as an accomplice to these
actions They may find it hard to prove their innocence, given
the fact that they tried to destroy evidence of their actions.

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Yes, people keep reporting that they paid $5,000 "for" the iPhone but, in fact, they paid $5,000 for access to it with every intention to return it to Apple as soon as they requested it, which they did.

These Anandtech/DailyTech articles keep saying that they indisputably purchased stolen property, which is FALSE.

No. Look it up. They said they paid $5K "for" it. What they had was an "hands on exclusive." What they paid for WAS the hands on exclusive. Other people interpreted it differently: What they had was [presumably, posession of] the 4th gen iPhone. What they paid for was[, assumedly, ownership of] the 4th gen iPhone. None of those assumptions will hold up in court.

Their exact wording was that they "got it for $5,000 in cash." Yes, they paid $5K for it to be overnighted to them for a hands-on exclusive and disassembly before handing it over to Apple at their request. They may have tried to buy a bit more time by asking for confirmation from Apple but, if you remember, that was over on Day 2... the phone was sent right back to Apple. It's not like they cared to keep it after that when their preview is over and they'll be able to buy it for $200 is a couple months.

I really don't understand why logical thinking is so difficult for some people. Regardless of semantic games with whether they paid to "own" it versus simply "hold it", the fact remains that, as California Law is written, they "stole" it.

It wasn't their property, and they took action with that property rather than immediately returning it to the owner. Worse, those actions netted them financial gain (which isn't a requirement for theft, but will certainly become an aggravating factor.)

Play sophist all you wish, but a more productive attitude might be to attack the California law itself as unfair, rather than blindly pretending they haven't broken it.

The Gizmodo article claims they contacted Apple before the story to get confirmation on the phone and Apple said it wasn't their phone and denied it's existence. It wasn't until after Gizmodo published the article that Jobs got his panties in twist. If true, I think that pretty much absolves Gizmodo of any wrong doing.

I think what's going on here is a PR smear campaign by Apple against Gizmodo trying to discredit them as a news source.

yes they 'claim' the guy that was shopping the phone around before getting Gizmodo to pay him $5K, tried to return it. His roommate is saying something different:

Apple discovered that Hogan was the person who found the iPhone the day Gizmodo’s story broke, after Rick Orloff, director of information security at the company, received a phone call from one of Hogan’s two roommates, Katherine Martinson. She told Apple that Hogan had found the phone and had been offering it to news outlets in exchange for a payment, despite having identified Powell as the rightful owner from a Facebook page visible on the phone’s display when he found it.

“Sucks for him,” Hogan allegedly told Martinson about Powell. “He lost his phone. Shouldn’t have lost his phone.”

Martinson turned Hogan in, because Hogan had plugged the phone into her laptop in an attempt to get it working again after Apple remotely disabled it. She was convinced that Apple would be able to trace her Internet IP address as a result. “Therefore she contacted Apple in order to absolve herself of criminal responsibility,” according to the detective who wrote the affidavit.

You are the one who should really read up on the law. First the despite Jason's usual accuracy <sarcasm> (did you even read the warrant Jason?) the police were called into Apples offices on 4/20/2010, the item was missing on 3/25/2010 almost a month after the "theft". It wasn't until Jobs was asked to own up to the phone on the 19th that the police were called (coincidence, I think not, I think this should be looked into given Apples role on the REACT steering committee). So there was ABSOULTLY NO WAY for ANYONE outside of Apple to know the device was missing. Gizmodo got an offer to get a hold of a device that someone CLAIMS to be a prototype. It's a story either way it went. If it was a prototype why didn't Apple report it stolen (which would have successfully prevented examination of the device since anyone who got a hold of it would have known it was stolen property, it is NOT necessary to buy it just receive stolen property). If it was a fake it could be a story about Chinese knockoffs or Apple releasing dis-information. $8000 is chump change for any of these exclusive stories. To convict Gizmodo on this charge they will have to PROVE, beyond a reasonable doubt, Gizmodo either knew it was stolen before they bought or paid the guy to get it, AND intended to deprive Apple from the device (you can buy as much stolen stuff as you want if you return it to its owners). EVERY communication I have seen mentions Gizmodo contacting Apple (whether they looked inside or not is irrelevant see my post above on the bogus trade secret claim). There is a VERY weak case at best against Gizmodo, the other jokers are justifiably fried.